Homeownership drops: Is that such a bad thing?

A recent University of Utah study projects that homeownership rates, which have declined slightly since their 2004 peak, will drop to 1980's levels within the next year. The study's authors attribute this to increasing numbers of immigrants, the subprime mortgage crisis, smaller households, and a demographic shift as boomers transition into empty-nesters.

A better explanation may be that this study, as it currently stands, is much ado about nothing. According to the U.S. Census bureau, homeownership rates are currently pegged at 67.4 percent. While this represents a 0.1 percent increase over the last quarter, it is also a 0.1 decreaseover the last quarter of 2008, suggesting that a large part of what we are seeing may be a seasonal fluctuation. By comparison, the rental vacancy rate jumped 0.5 percent in the same period of time.Perhaps more to the point, the much-touted homeownership rate is actually a drop of only 1.8 percentage points from the 2004 peak of 69.2 percent -- while this reduction is notable, it is hardly apocalyptic.

Still, end-of-the-world scenarios are fun to write about and, the total massive destruction of homeownership is too big a story to ignore -- even if it isn't really happening. Pundits and analysts are already queuing up to blame aging boomers who are moving into retirement communities, their maturing Gen-Y offspring who are moving into rentals, small families that don't need big houses, and big immigrant families that can't afford to become property owners. In some scenarios, frozen credit is spelling an end to the American way of life; in other analyses, it's gay couples who don't want to own.

Rather than focus on the question of whether or not homeownership is on its way out, it might be worthwhile to consider whether or not reduced homeownership is a bad thing. Homeownership is often cited for its ability to create stable neighborhoods; this, in turn, presumably translates into stable tax bases, as well as healthy businesses, public parks, big shaggy dogs, and apple pie. On a broader context, however, all these benefits are largely the outgrowth of sufficient jobs.

To a certain extent, homeownership and a stable job market don't necessarily go hand-in-hand. As homeowners in Detroit, Buffalo, Youngstown, and many of America's other rust belt cities can certainly attest, homeownership can often keep workers from going to where the jobs are.

In bad economic times, in fact, homeownership can act as a sort of force multiplier: in a boom market, homeowners can generally count on finding buyers if and when they need to move. However, when jobs dry up, and a family desperately needs to move, selling a house can become a long, painful exercise in dropping values, lost money, and lowered expectations. Taking this to its extreme, job options narrow and families go into default, making it even harder to sell homes. Suddenly, a home becomes a huge cinder block around the neck of its owners.

As the recent housing boom demonstrated, the American homeowner mythos has not always served its adherents all that well. The story has already grown old: with prices going up and interest rates going down, millions of people bought houses that they couldn't afford in the hopes of refinancing or flipping before the bill came do (or the ARM came down). While many of these buyers were seduced by cheap interest rates, it is hard to overestimate how much the siren-song of stable neighborhoods and steadily increasing equity may have fueled the fire.

This is not to say, of course, that homeownership is always a bad thing. However, it is clearly not for everybody, and the one-size-fits-all American dream of being a member of the landed gentry is more likely to serve construction companies and housing contractors than the vast majority of potential homeowners. If homeownership is actually declining, perhaps we need to embrace it as a move toward sanity, flexibility, and stability.